What is going on here?
Indian government bond yields have become a hot topic due to a strategic shift by the Reserve Bank of India (RBI) and FTSE Russell’s inclusion of Indian government bond yields in its major emerging market indexes.
What does this mean?
The RBI’s recent shift to a ‘neutral’ policy stance with interest rates unchanged suggests a possible rate cut by December. The move is in line with FTSE Russell’s plan to include Indian government bonds in its emerging market bond index by September 2025, joining the likes of JPMorgan and Bloomberg. As a result of these developments, the yield on the benchmark 10-year bond has already fallen from 6.8077% to 6.7676%, and after the announcement it fell further to 6.7392%. Inclusion in the global index is expected to attract $4 billion to $5 billion in foreign investment, with yields likely to stabilize or even fall as demand increases. With the RBI governor optimistic about achieving the 4% inflation target, major financial institutions such as HSBC and Barclays are expecting their first rate cut in December, which will see repo rates cut by a total of 100 basis points by the end of 2025. There is a possibility.
Why should we care?
For the market: India will take center stage in global bond portfolios.
The addition of Indian bonds to the FTSE Russell index could significantly increase overseas investment. The move signals confidence in India’s financial stability and could result in stable or declining yields, making it an attractive option for global investors to diversify their portfolios with Indian securities amid falling yields globally. It’s a lucrative opportunity.
The big picture: Shaping the future of emerging markets.
The RBI’s policy shift and increased global visibility highlight India’s growing influence in emerging markets. As inflation stabilizes and the economy gains traction, India’s bond market will emerge as a major player, reflecting broader changes in the global financial ecosystem and potentially influencing economic strategies around the world.
